Friday, September 16, 2011
Upticks and Updates: More Why the Rich Get Richer and You Don't
It was noted Wednesday that mortgage applications rose last week because the interest rate had fallen to a new low. Well, hallelujah, happy days are here again. Of course, a good number are people refinancing while they got the chance to maybe lower their payments. Meanwhile, a way too high percentage of home sales are on foreclosed property and foreclosures remain a problem, bloating the inventory.
Stock Markets went well up today on the belief now that Greece won't default. That is the state of it now. We don't have stock growth on positives, just that the worse negatives don't occur.
But no matter the state of the state or whether Greece is well greased or not, it doesn't mean you can't make money in the market if you are a Wall Street type and have wealth. If you have lots and lots of money you can play the Long and Short Selling game and you can even make money by betting stocks are going to fall. If you have enough dough, you can even manipulate the rise and fall by buying large amounts of a stock.
The rich guy buys enough of one stock hoping others jump on the bandwagon seeing his buy and they start buying and the stock goes up. Then when the rich man wishes, he dumps the stock at a high price and sends it plummeting. Once it has bottomed out, he may buy it back at the low cost again. This is having your cake and eating it too. The guy makes money on the profit from his initial purchase and then buys it back low, thus keeping his profit and having the stock as well.
Now to update y'all on my previous post, "Tangles of the Ticker Tape: Why the Rich Get Richer and You Don't". In that piece I spoke of a certain CEO who bought 342,876 shares of his own company at $.92 a share. That was the report I read that day. It seems he actually bought a bit more than that over a couple more days. He bought another 342,876 shares on the 9th at $1.19 a share and then 481,714 shares on the 13th at $1.36. Notice how each time he has bought, the price has been higher. He spent $1,378,599.40 overall and do you know where that stock stands now? It is currently at $1.59, meaning if he sold it this instant it would sell for $1,856,270.94, a tidy profit in a week of $477,671.54 less broker fees.
Now the price has went up because his purchases gave confidence to other investors to also buy that stock. They believe if he has this much faith in his company turning around, he must know something. So, his money enables him to manipulate the price upward.
Could you or I do that? Well, if you be rich, probably. I am not rich. I might have been able to buy, oh say, 100 shares of that stock at $.92, a cost of $92 (plus broker fees of course). I don't think my ninety-two dollars or my reputation is going to encourage any followers to jump on any stock because I do. Then if I sold my 100 shares at the current price I would make a profit of $67 (less those broker fees cause brokers gotta eat too). That is a nice gain on my investment of 73%, but a long way from making me rich.
Besides, by the time we little fish jump in the pool, the sharks have driven the price to the heights, then they drain the pool and leave us high and dry. Of course, a bit earlier in the day I could have made $79, but by the end of the day that stock dropped $.12 since the opening
Will the stock regain today? Will it continue up, stay even, begin to drop back where it started? A lot will depend on how well the CEO's new business plan succeeds. If the efforts to turn the stores around faultier, then so will the stock price, and then will the CEO dump the stock for a profit or go down with his ship?
We shall see.